SCR Calculator User Manual

Version 1.16.0.0 Last modified 2024-12-8

Liability Replicating Portfolios and Surplus Optimisation


Liability Replicating Portfolio (LRP)

The SAA Optimiser can incorporate liabilities in the form of Liability Replicating Portfolios (LRPs) and optimise the surplus accordingly.


Understanding LRPs

For example, a set of US Treasury return series can be combined to replicate a specific liability profile. These series are used to calibrate correlations and act as proxy asset classes with negative, fixed weights in the allocation plan.

Calculating the LRP weights must be done externally. A common approach involves fitting the Key Rate Durations of an LRP basket to those of the actual liabilities. The total return series of these LRPs then serves as a representation of the liabilities. This LRP fitting process must be completed before using the optimiser.


Sample Input Sheets

Examples of input sheets containing LRPs are available here:

Any return series whose names start with "Liab" (case insensitive) will automatically be treated as LRPs by the optimiser.


Surplus Optimisation

After importing the allocation and return series input sheets, the efficient frontier will be automatically generated based on the surplus:

From this point, the process is identical to the asset-only optimisation. You can compare the efficient frontiers from both approaches for deeper insights.